What would the world be like if fiber optic and mobile phones had been available in the 1930's? Would the decade be known as the start of the Information Revolution rather than the Great Depression?

The Great Bell Labs

In early 1934, Clarence Hickman, a Bell Labs engineer, had a secret machine, about six feet tall, standing in his office. It was a device without equal in the world, decades ahead of its time. If you called and there was no answer on the phone line to which Hickman's invention was connected, the machine would beep and a recording device would come on allowing the caller to leave a message.

The genius at the heart of Hickman's secret proto–answering machine was not so much the concept- perceptive of social change as that was-but rather the technical principle that made it work and that would, eventually, transform the world: magnetic recording tape. Recall that before magnetic storage there was no way to store sound other than by pressing a record or making a piano roll. The new technology would not only usher in audio cassettes and videotapes, but when used with the silicon chip, make computer storage a reality. Indeed, from the 1980s onward, firms from Microsoft to Google, and by implication the whole world, would become utterly dependent on magnetic storage, otherwise known as the hard drive.

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If any entity could have come up with advanced recording technology by the early 1930s it was Bell Labs. Founded in 1925 for the express purpose of improving telephony, they made good on their mission (saving AT&T billions with inventions as simple as plastic insulation for telephone wires) and then some: by the 1920s the laboratories had effectively developed a mind of their own, carrying their work beyond better telephones and into basic research to become the world's preeminent corporate-sponsored scientific body. It was a scientific Valhalla, hiring the best men (and later women) they could find and leaving them more or less free to pursue what interested them.

When scientists are given such freedom, they can do amazing things, and soon Bell's were doing cutting- edge work in fields as diverse as quantum physics and information theory. It was a Bell Labs employee named Clinton Davisson who would win a Nobel Prize in 1937 for demonstrating the wave nature of matter, an insight more typically credited to Einstein than to a telephone company employee. In total, Bell would collect seven Nobel Prizes, more than any other corporate laboratory, including one awarded in 1956 for its most famous invention, the transistor, which made the computer possible. Other, more obscure Bell creations are nevertheless dear to geeks, including Unix and the C programming language.

In short, Bell Labs has been a great force for good. It is, frankly, just the kind of phenomenon that makes one side with Theodore Vail about the blessings of a monopoly. For while AT&T was never formally required to run Bell Labs as a research laboratory, it did so out of exactly the sort of noblesse oblige that Vail espoused. AT&T ran Bell Labs not just for its corporate good but for the greater good as well. This is not to be naive about the corporate profit motive: Bell Labs contributed to AT&T's bottom line far more than plastic wire insulation. Nevertheless, it's hard to see how funding theoretical quantum physics research would be of any immediate benefit to shareholder value. More to the point, it is hard to imagine a phone company today hiring someone to be their quantum physicist, with no rules and no boss.

For, in part, the privileges AT&T enjoyed as a government-sanctioned monopoly with government-set prices were understood as being offset by this contribution to basic scientific research, an activity with proportionately more direct government funding in most other countries. Put another way, in the United States, the higher consumer prices
resulting from monopoly amounted, in effect, to a tax on Americans used to fund basic research. This unusual insinuation of a corporation between the government and its goal of advancing American science goes a long way to explain how AT&T, as it matured, became in effect almost a branch of government, charged with top- secret work in the national interest.

For all the undeniable glory of Bell Labs, there emerge little cracks in the resplendent façade of corporatism for the public good. For however many its breakthroughs, there was one way in which the institution was very different from a university: when the interests of AT&T were at odds with the advancement of knowledge, there was no question as to which good prevailed. And so, interspersed between Bell Labs' public triumphs were its secret discoveries, the skeletons in the imperial closet of AT&T.

Let's return to Hickman's magnetic tape and the answering machine. What's interesting is that Hickman's invention in the 1930s would not be " discovered" until the 1990s. For soon after Hickman had demonstrated his invention, AT&T ordered the Labs to cease all research into magnetic storage, and Hickman's research was suppressed and concealed
for more than sixty years, coming to light only when the historian Mark Clark came across Hickman's laboratory notebook in the Bell archives.

"The impressive technical successes of Bell Labs' scientists and engineers," writes Clark, "were hidden by the upper management of both Bell Labs and AT&T." AT&T "refused to develop magnetic recording for consumer use and actively discouraged its development and use by others." Eventually magnetic tape would come to America via imports of foreign technology, mainly German.

But why would company management bury such an important and commercially valuable discovery? What were they afraid of? The answer, rather surreal, is evident in the corporate memoranda, also unearthed by Clark, imposing the research ban. AT&T firmly believed that the answering machine, and its magnetic tapes, would lead the public
to abandon the telephone.

More precisely, in Bell's imagination, the very knowledge that it was possible to record a conversation would " greatly restrict the use of the telephone," with catastrophic consequences for its business. Businessmen, for instance, the theory supposed, might fear the potential use of a recorded conversation to undo a written contract. Tape recorders
would also inhibit discussing obscene or ethically dubious matters. In sum, the very possibility of magnetic recording, it was feared, would " change the whole nature of telephone conversations" and " render the telephone much less satisfactory and useful in the vast majority of cases in which it is employed."

And so we see that the enlightened monopolist can occasionally prove a delusional paranoid. True, once magnetic recording arrived in America, there were a few, from Nixon to Lewinsky, whose sordid secrets would be exposed by it. But, amazingly enough, we all still use telephones. Such are the liabilities of being subject to the whim of even the most high-minded corporation: even the fantasy that the fate of the company could be at stake can have significant consequences. It was safer to shut down a thrilling line of research than to risk the Bell system.

This is the essential weakness of a centralized approach to innovation: the notion that it can be a planned and systematic process, best directed by a kind of central intelligence; that it is simply of matter of assembling all the best minds and putting them to work in unison. Were it so, the future could be planned and executed in a scientific manner.

Yes, Bell Labs was great. But AT&T, as an innovator, bore a serious genetic flaw: it could not originate technologies that might, by the remotest possibility, threaten the Bell system. In the language of innovation theory, the output of the Bell Labs was practically restricted to sustaining inventions; disruptive technologies, those that might even cast a shadow of uncertainty over the business model, were simply out of the question.

The recording machine is only one example of a technology that AT&T, out of such fears, would for years suppress or fail to market: fiber optics, mobile telephones, digital subscriber lines (DSL), facsimile machines, speakerphones - the list goes on and on. These technologies, ranging from novel to revolutionary, were simply too daring for Bell's comfort. Without a reliable sense of how they might affect the Bell system, AT&T and its heirs would deploy each with painfully slow caution, if at all.

Perhaps the response seems less neurotic if we consider how deep-seated can be the apprehension of the Kronos effect. Not for nothing would the Bell system prove itself among the best defended and most secure monopolies in corporate history. Whatever the opportunity inherent in new technology, there was always also a threat, one that prudence demanded be devoured at birth. Bell's own genesis had proved that bit of wisdom. In 1876, Alexander Bell had patented the machine that eventually dethroned and replaced what was then the nation's greatest corporation, Western Union. What charm of the new can possibly rival the instinct for self-preservation? Certainly not a plastic cup.

Tim Wu is an author, policy advocate and author of The Master Switch. He is a professor at Columbia Law School, the chairman of media reform organization Free Press. Wu was recognized in 2006 as one of 50 leaders in science and technology by Scientific American magazine, and in 2007 Wu was listed as one of Harvard's 100 most influential graduates by 02138 magazine. Tim Wu's best known work is the development of Net Neutrality theory, but he has also written about copyright, international trade, and the study of law-breaking. He previously worked for Riverstone Networks in the telecommunications industry in Silicon Valley, and was a law clerk for Judge Richard Posner and Justice Stephen Breyer. He graduated from McGill University (B.Sc.), and Harvard Law School.

The Master Switch: The Rise and Fall of Information Empires is available from Amazon.com